Real Estate Glossary
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capitalization rateis a one of the components, the Rate, within the Income Approach formula (V = I ÷ R) used to determine the value of an incoming producing property. The Capitalization Rate is comprised of two rates: the interest rate and the capital recovery rate (often referred to as the recapture rate). The interest rate is the return "on" the investment. It is interest in its traditional sense and use. The capital recovery rate is actually the return "of" the investment. That is, the capital recovery rate reimburses the investor for the deterioration in value of the improvements which were paid for at the time of purchase, but deteriorate as time passes. | |
cash equivalencyrefers to adjustments necessary to determine a subject's value when pricing has been affected by favorable (below market) financing terms provided by the seller in a transaction, or the assumption by the buyer of a below market mortgage. The cash equivalency technique will reveal the maximum impact that the favorable financing may have had on the price paid; it will not necessarily reveal the actual impact on the sales price. It attempts to determine what the actual sale price would have been if the favorable financing or concessions had not been offered. | |
CERCLA - Comprehensive Environmental Response Compensation and Liability ActA federal law, in 1980 and reauthorized by the Superfund Amendments and Reauthorization Act of 1986, which imposes on owners, lenders, occupants, and operators liability got correcting environmental problems discovered on a property. | |
Certificate of reasonable value (CRV)This states the property's current market value based on a VA-approved appraisal. The CRV places a ceiling on the amount of a VA loan allowed on the property. | |
certificate of titledocument from and attorney/agent expressing an opinion as to the lawful holder of title to the real estate. The title insurance company will use the certificate of title to issue the title insurance. | ||
chain of titleshows each property’s history of ownership. Because the current owner’s title is only as good as the title received from the previous owner, the chain of title can establish that the ownership was properly vested in each of the proceeding owners. | |
chattelor personal property, includes all tangible items that are not considered real estate. | ||
Civil Rights Act of 1866This banned all racial discrimination and was mainly intended to protect the civil rights of African Americans in the wake of the civil war. This law provided that "All citizens of the United States shall have the same right in every state and territory as is enjoyed by White citizens thereof, to inherit, purchase, lease, sell, hold, and convey real and personal property." | |
Civil Rights Act of 1968This emulated the objectives of the Civil Rights Act of 1964 and extended protections against discrimination in residential real estate transactions based on the protected classes of race, color, religion, or national origin. | |
clientis the individual or entity that creates a contractual relationship with the real estate professional. The appraisal client is generally the party engaging the services of the appraiser. The client may or may not be the party who pays the appraiser for his or her services. A financial institution may request an appraisal for a mortgage loan. The borrower/owner may pay the appraiser at the time of the inspection but the actual client for the appraisal service would be the financial institution who engaged the appraiser to perform the valuation service. | |
ClosingThis involves two major events: the promises made in the sales contract are fulfilled and the mortgage funds are distributed to the buyer. | |
Closing disclosureA five page document that shows the accounting of the settlement of payments and expenses for both the borrowers and sellers in the transaction. | |
closing statementDetailed cash accounting of a real estate transaction made by a broker, escrow officer, attorney or other person designated to process the mechanics of the sale, showing all cash received, all charges and credits made, and all cash paid out in the transaction. May also be called a settlement statement. | |
coinsurance clausea clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to 80% of the property's actual replacement cost. | |
commissionpayment to a broker for services rendered, such as in a sale or purchase of real property. | |
community association managera person who provides only community association manager servies acting on behalf of a broker. A community assocation manager is responsible for the operation of the affairs of a community association, which includes overseeing the daily operations of an association. | |
community propertyis a form of ownership where both spouses have an equal interest in property acquired during the marriage. Spousal interest can be created per state law for all property not considered separate property even if the deed is silent or if the real estate was purchased and title only named one spouse. | |
Community Reinvestment Act of 1977 (CRA)under the act, financial institutions are expected to meet the deposit and credit needs of their communities, participate and invest in local community developement and rehabilitation projects; and participate in loan programs for housing, small businesses, and small farms. | |
comparablerefers to a suitable substitute that has similar attributes and characteristics of the subject that can be used to help determine the market value of the subject. | ||
competent partiesa person who can legally enter a contract. This means that the person must be of legal age and of sound mind. If it is a business entity they must have authority to bind the business. | |
competitive market analysis (CMA)A comparison of the prices of recently sold homes that are similar to listing seller's home in terms of location, style, and amenities. | |
complainantA person who makes a complaint or instigates legal action against another. | |
complaint processSomeone who believes that illegal discrimination has happened can file a complaint with HUD within a year of the act. After a complaint has been filed and received HUD will decide if there is reasonable cause to charge illegal discrimination. Most cases are attempted to be resolved through conciliation. But they do have the right to an administrative hearing or even civil action in federal court within two years of the act. | |
Computerized Loan Origination (CLO)computer network connected into a major lender that lets agents everywhere to initiate loan application in their own offices. | |
condemnationis the process or legal action required by the government to exercise its power of eminent domain. | |
condition adjustmentare adjustments made by the appraiser to estimate a subject's value accounting for the homeowner maintenance, or the lack thereof. The appraiser must obtain detailed information about the subject’s condition and the condition of the comparables in order to accurately adjust for this factor. Condition adjustments can be based on the cost to cure the deficiency. Generally, when the typical purchaser is evaluating a potential purchase they will take into account the cost to cure known maintenance issues. If a roof needs to be replaced, the typical purchaser will discount the price to be paid by the cost to replace the roof covering. The appraiser can use the cost to cure to adjust for condition differences when estimating value. | |
condominiumis property ownership whereby each owner of a single unit also owns some common area jointly (as tenants in common) with the other unit owners. | |
Condominium DeclarationDocument filed to create a condominium which establishes the owner’s intent to create this special category of real estate ownership. Declaration includes the full legal description and the administrative structure of the condominium and the Condominium Association; including identifying and creating board positions, election procedures as well as powers and duties. | |
Condominium’s Rules and Regulationsdocument filed with the condominium declaration which will contain rules passed by the condominium’s administrative officers who may limit certain activities such as the ability to rent units, the ability to park certain vehicles, the assignment of parking spaces, and rules that may affect a variety of other activities. | ||
considerationin a deed means that something of value is being given in exchange for the rights being aquired. | |
constructive noticeis one of the three ways the law presumes an individual has notice of an event. Constructive notice is making information available for public discovery. The deed recording system provides a means of legally providing notice (albeit constructive) to the world. | |
contractis an agreement made between two or more parties where each promises to do something; or promises to refrain from doing something. If a breach occurs, the law provides a remedy. | |
contributionThe principle of contribution states that items or components of real estate are worth what value they contribute to the entire property value. Contribution applies to the cost approach since, in effect, the improvements will be worth whatever value they contribute to the land. | ||
controlled business arrangement (CBA)Stated by the Real Estate Settlement Procedures Act (RESPA), it is an arrangement in which an individual or firm has more than one percent interest in a company to which the firm regularly refers business. | |
cooperativeoften refers to a group of individuals who unite in some common business endeavor. The business is owned and managed by its members for the benefit of its members. Coops provide purchasing power and economies of scale that would not be available to the members acting alone. Coops can be created for numerous products or retail enterprises, utilities, credit unions, and real estate cooperatives. | ||
corporationa legal entity separate and distinct from its creators. They are considered "persons" under the law and may have perpetual existence - that is, the corporation will continue even after the stockholders who created it are deceased. | |
costthe word "cost" has many connotations. In accounting cost means the price paid at acquisition. In general conversation, cost may be used to describe the wholesale price. Appraisers, however, use cost to describe the cost to the consumer to construct the improvements being appraised as of the effective date of the appraisal. What “cost” means to appraisers is the current retail price to the consumer including all construction costs, builder profits, and marketing expenses. | ||
cost approachis one of the three classic approaches to estimating the value of real property. In the cost approach, the site and the improvements are valued separately. The focus in applying the cost approach is on the current value or current cost of the improvements. The improvements are valued at the current cost new minus any loss in value due to depreciation. The depreciated cost of the improvements is then added to the site value to provide an indication of the value of the property. It is considered most reliable when appraising properties with new improvements or when appraising properties that have unusual improvements for which there are no market comparables. | |
counterofferis a new offer made in response to an offer received. | ||
covered housingThe Fair Housing Act applies to:
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Creditan amount entered in a person's favor; an amount that has already been paid, an amount being reimbursed, or an amount the buyer promises to pay in the form of a loan. | |
curable depreciationthe economic feasibility of “fixing” the item which is causing the value loss. An item of depreciation is curable if the cost to cure does not exceed the value increase derived from implementing the cure. Alternatively, if the value increase is equal to, or greater than the cost the cure, the deficiency will be categorized as curable. Curable items would include most common items of physical depreciation such as repair of a broken window, or broken handrail. It would also include re-painting the exterior of the house if the paint finish was worn and no longer protecting the siding or trim. | ||
customera non-represented person (third party) who still gets some kind of service. | |